ASIC lawyer warns cuts will backfire

The corporate regulator has been savaged by one of its own lawyers for slashing staff in a key investigative unit just as it sees a big rise in cases that need action, prompting “turmoil and uncertainty" within the organisation.

The budget savings are set to lead to a 20 per cent cut in work by the deterrence unit which is meant to act on major corporate collapses such as Storm Financial and Westpoint in order to ensure the integrity of capital markets.

A internal memo from an Australian Securities and Investments Commission lawyer warns that the changes would allow misconduct to go unpunished because referrals to the deterrence unit could not be pursued.

ASIC chairman
Greg Medcraft
played down fears about job cuts last week but the internal analysis lends weight to concerns about the organisation’s resources just as it comes under scrutiny from a federal government funding probe.

The memo, obtained by The Australian Financial Review, warns that corporate misdeeds will go unpunished as a result of the loss of about 50 deterrence staff, eroding public confidence in the regulator.

“Each referral that is declined on account of resources means that ASIC is falling short of fulfilling its role of administering the Corporations Act," says the memo to ASIC senior executive leader David McGuiness.

“Further, using the current capacity of deterrence teams to determine what matters are to be resourced potentially means that identical misconduct can be treated differently.

“This can result in a different treatment of offenders and breach the duty to ensure that all people are treated equally before the law. While it appears that such decisions may not create a liability on ASIC, it decreases public confidence in the regulator."

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The memo rejects ASIC’s formal position that the staff cuts are redundancies that come from restructuring operations. Instead, it argues the cuts were made only to save money and would have to lead to a 20 per cent cut in the number of cases pursued.

The plan delivers a saving to ASIC of about $5 million a year, based on an average cost of $100,000 for each of the 50 places lost when reducing the deterrence staff from 259 to 205.

“The review has created turmoil and uncertainty within deterrence, shared services and to some extent the whole of ASIC," the memo warns.

The staff cuts have gone ahead, along with 30 in other areas, but Mr Medcraft told a Senate estimates hearing last week that the organisation was trying to use its resources in the most efficient way.

Asked by Liberal senator
Mathias Cormann
if he had been advised that the cuts would have a significant effect on ASIC’s ability to undertake its deterrence role, Mr Medcraft took the question on notice.

“It doesn’t really come down to numbers. It comes down to getting the right referrals to get the right outcomes for Australian consumers and investors," he told the hearing.

When asked by Senator Cormann to put his “hand on his heart" and say that the deterrence unit had adequate resources, the ASIC chairman said that was a matter for the committee.

“You can have an ASIC at $250 million, you can probably have one at $350 million or $450 million," he said.

ASIC is undergoing a funding review by Treasury and the Finance Department, which have hired consulting firm Oliver Wyman to look at the agency’s resources.